Strategic thinking, a missing piece in many start-ups

Successful start-ups are usually the ones that are able to combine a clear vision with good execution.

Vision is all about this (very) long-term goal that you plan to achieve, which is sometimes a bit idealistic.

Execution, on the reverse, is all about building, day after day, a high-performance organization that turns your vision into a reality.

I have always considered that there is a kind of gap in the middle.

“Strategic thinking skills are any skills that enable you to use critical thinking to solve complex problems and plan for the future” — Harvard Business School.

If the vision is about the very long-term, and execution is about the day-to-day, strategic thinking is about the mid-term. It is like a chess game which consists of anticipating market dynamics and the future competitive landscape to position your company well enough to reach your long-term goal.

When I speak to founders, either as a business angel or as a “mentor”, I usually find them very focused on the long and the short term but not enough on the mid-term. Most of them have a compelling vision, and some are good at execution, but they usually do not think enough about what will happen to them and the market in general in the mid-term. Unfortunately, this missing piece ends up killing many start-ups.

At Kantox , after raising our Series B in 2015, the business progressed well, with triple-digit growth. That said, we started anticipating several fundamental market changes:

• Barriers to entry were decreasing, and competition would increase with new players entering the market.
• Prices and margins were going to be pushed down.
• Transparency was becoming the norm.

In that context, our steady growth would probably be jeopardized sooner or later.

In a situation like this, which is very common in the Tech industry where things change fast, what usually happens is that start-ups work harder in terms of execution. They try to raise more money than their competitors to grow faster, hoping that in the end, they will remain one of the few survivors and that unit economics will then magically improve. This behaviour has led to many disasters: couponing a decade ago, delivery and mobility more recently. The list is long…

To come back to Kantox, what we decided to do in late 2016 was to fundamentally change our positioning. A much stronger software component allowed us to put an end to competing only on price. Had we kept on with our existing model at that time, trying to raise more money to grow faster, I think I would not be writing this article today…

Strategic thinking is, first and foremost, about being critical with yourself and your company, to really wonder if you are well-positioned to be successful in the long term. And, if the answer is “no”, you need to be brave enough to make hard decisions early enough to be master of your company’s destiny.

I have seen too many start-ups that decide to pivot, to change their model or strategy when they are already out of cash and close to bankruptcy. Strategic thinking is one of the key roles —and maybe the most misunderstood one— of a start-up CEO. For sure, you need to develop and share the vision, raise money, and attract the best talent, but a lack of strategic thinking is a weakness that can kill your company.

Now the question is: how to do it and how to develop strategic thinking?

Strategic thinking is definitely not a hard skill that you will learn quickly. It is more of a mindset, a way to look at things and to question them constantly.

That said, here are some tips or questions that you can ask yourself to at least start to think strategically and critically:

• Are we really better positioned than our competitors, and do we have a sustainable competitive advantage? At Kantox in 2016, we decided to start building sophisticated software to automate FX risk management, something unheard of in the market. Today, it allows us to have a very unique positioning and creates a strong barrier to entry into the market.

• Is the number of competitors going to increase or decrease on a 2-5 year horizon? I have to confess that when we started re-positioning the company, my bet was that we were going to be alone for 2-3 years, and then competition would come. Seven years later, we are still alone — complexity is an amazing barrier to entry (it has some downsides, too, particularly in terms of educating the market).

• How is unit economics going to behave in the long term? Will profitability increase or decrease? The answer is usually directly dependent on the first two questions. If you are better positioned, with a clear competitive advantage, competition will be limited, and profitability should be high.

I recently had a conversation with the CEO of a start-up I invested in. The company had been approached for an M&A deal. The acquirer was interested in buying them or one of their competitors to enter the French market. They were concerned that if the deal did not happen, they would buy their competitor, who would then become much stronger. So, I spent some time asking him questions to think about it critically.

The conclusion was that their competitor had a much less mature product and was focused on smaller clients with worse unit economics. Even more importantly,? even with the strongest competition, the CEO was convinced they had every ingredient to succeed. His conclusion was to look at the M&A deal opportunistically and to make a go / no-go decision very quickly to focus on growth.?

Strategic thinking is, in a large measure,? thinking about competition. But, unlike what happens at many start-ups, it is not about trying to replicate what competitors do, to copy them anytime they release a new feature or a use case, or to raise more money than them. Strategic thinking is about developing a deep understanding of the competitive landscape to better position your company and make transformative decisions from time to time.?

Usually, when a start-up CEO asks me, “What should I do when one of my competitors does something new?”. My answer is, nothing. Wait and think; do not rush!